SOUTH WEST WATER
Turning to the future after a successful conclusion to the 2005-2010 regulatory cycle
Chris Loughlin
Chief Executive
South West Water Limited
CHIEF EXECUTIVE'S OVERVIEW
South West Water performed strongly this year, improving its customer service, delivering further operational efficiencies and achieving sound financial results. It has now successfully completed the 2005 - 2010 regulatory contract and has a solid platform in place for continued success during the next regulatory period (2010 - 2015).
The company continues to be led by its vision of 'Pure Water, Pure Service and Pure Environment'. Underpinning this vision is the strategy of striking the right balance between investing to improve our services, customer affordability and financeability.
In November 2009 Ofwat announced its Final Determination of the company's business plans and set price limits for the period 2010-2015. This confirmed average real price increases of 1.9% over the next five years.
Throughout the Periodic Review process, our focus was on safeguarding our many achievements of the last 20 years through investment where needed whilst delivering stable bills for our customers. Our future plans continue to reflect customer priorities but we have also challenged ourselves to deliver further cost efficiencies beyond those set by Ofwat.
Many of our key operational results and achievements over the last 12 months demonstrate the benefits of our 'Pure Water, Pure Service and Pure Environment' vision.
During 2009/10, the company delivered significant improvements in both operational and customer service performance across a range of key measures, which will provide a springboard to meet the challenges to come.
Pure Water
Tap water quality is measured by Mean Zonal Compliance (MZC) which is the Drinking Water Inspectorate's preferred method for water quality assessment. It was maintained for a second year at its highest ever level of 99.98% in 2009.
Maintaining high water quality levels was the target of our recently completed £220 million water mains renewal programme undertaken between 2005 and 2010. During the final year of the project, 104 kilometres of mains pipes were relined or replaced and all five DWI-approved programme milestones were successfully completed. The final milestone was achieved ahead of schedule.
Carrying out repairs on the network can cause the interruption of water supplies to customers. However during 2009/10 there was a welcome improvement in this area with the number of properties experiencing unplanned interruptions reducing to 514 properties from 1,407 in 2008/09.
Despite the coldest winter for nearly 30 years causing a surge in burst pipe incidents for both our customers and network, we still beat our leakage control target of 84 Megalitres per day (Ml/d), and achieved a best ever performance of 82 Ml/d.
We have now achieved or beaten our leakage targets every year since they were first introduced by Ofwat in 1999/2000. Our leakage rate remains amongst the lowest in the industry at 5.5 cubic metres per kilometre of mains per day.
This has been our 13th consecutive year without water restrictions. The company has put in place a comprehensive strategy to ensure a continued secure supply of water for the region.
During the year work on two major new trunk mains serving South Devon and East Cornwall was completed, strengthening water supplies in each area for decades to come.
Park Lake on Bodmin Moor is now operational while work has started on converting nearby Stannon Lake into the company's fourth biggest reservoir. These former china clay pits were purchased in 2006 as a cost-effective alternative to building new reservoirs.
Pure Service
Renewing its emphasis on excellent service has helped the company improve its performance for customers.
We are achieving year-on-year reductions in operational service contacts, with a 24% reduction in the last year, and reductions in repeat service contacts. Improvements to the handling of service contacts have helped reduce the number of complaints received.
Customer satisfaction with the way their contact with the company has been handled and the ease of contacting us has improved resulting in a best ever performance of 4.53 out of a possible 5.0 maximum.
However there is always room for improvement to ensure that we have systems in place which will provide continuous advances in our customer service.
This will include extending a range of measures to assist those customers in genuine financial difficulty as a result of the recession whilst still actively pursuing those who can pay their bills but do not.
In particular, we will be continuing to support our innovative 'WaterCare' programme, which has assisted over 7,000 households since its introduction in 2007.
Through WaterCare, customers are advised on how to better manage their water use and household budgets including claiming all the benefits to which they are entitled. The free installation of water-saving devices has proved popular with customers and both they and the company have benefited from moving them on to affordable and regular payment plans.
A number of the customers on this programme are now paying more than double the level of payments they did before, thereby reducing the company's outstanding debt.
Between 2010 and 2015 we will also be expanding our involvement with consumer organisations such as Citizens Advice and will be implementing a personalised debt advice initiative.
Pure Environment
South West Water's record of environmental achievements was further strengthened during 2009/10.
The company's focus on proactive maintenance of its waste water network resulted in an 11th consecutive year without a major Category 1 pollution incident and the number of more minor Category 2 and 3 incidents remained at a low level.
The long-term transformation of bathing water quality in the South West, due to the £2 billion Clean Sweep programme, was also safeguarded with 96.5% of bathing waters complying with the EU mandatory standard. A decade ago this figure was only 42.6%. This major improvement in quality has also helped the South West gain the most Blue Flag beaches of any region in the UK.
The region's bathing water quality has been affected by significant rainfall for the last three summers. This has carried agricultural and other surface water pollutants into the sea.
The percentage population equivalent served by sanitary-compliant waste water treatment works in the calendar year 2009 was 99.7%. This consistently high performance contributes to the region having the highest percentage of high quality rivers in England.
A pilot moorland restoration project 'Mires', undertaken on Exmoor between 2003 and 2010, beat strong competition to win a Water Industry Achievement Award for 'Sustainable Drainage and Flood Management Initiative of the Year'. The success of Mires and other environmental initiatives has led to a more extensive programme of catchment management which is being implemented called 'Upstream Thinking'. Restoring wetlands will allow slower and steadier flows and cleaner water from the moors to rivers and reservoirs. This in turn will help minimise long-term treatment costs.
Mires will be expanded across the region with moorland and farmland projects between 2010 and 2015 in partnership with Exmoor National Park Authority, Dartmoor National Park Authority, Natural England, the Environment Agency, English Heritage, local farmers and landowners.
Focussing on our 'Pure' vision has assisted the company in delivering a strong set of results both financially and operationally. This has also ensured there is a solid platform in place for further progress to be made. Ofwat's Final Determination represents a tough challenge for the company but it is one we have accepted and are determined to deliver.
To meet this challenge, we have:
- renegotiated our key operational contracts with service partners to create more innovative ways of working and further cost efficiencies through establishing the new incentivised 'H5O' Delivery Alliance to deliver the capital programme
- invested in a more centralised operating structure employing increased levels of automation
- continued our organisational restructuring drive to sustain our services through flexible working while securing efficiencies. It is expected that a further £4 million will be provided for restructuring costs in 2010/11
- successfully reduced our energy consumption through our 'Megawatt Challenge' company-wide initiative. Staff led energy saving projects resulted in overall energy savings of 6.5 GWh, a reduction of around 3,500 tonnes of CO2 and a cost saving of around £600,000 per annum. Further energy savings will be delivered by our 'PowerDown' programme which is in place to achieve more efficiencies and cost reductions between 2010 and 2015.
This has been another successful year for South West Water. Further significant improvements have been made in achieving service excellence and new operational efficiencies.
I would like to thank all our staff and our suppliers for their dedicated and innovative work. Their achievements this year have ensured we are in the strongest position possible to deliver in the years ahead.
FINANCIAL REVIEW
Against the background of an uncertain economic recovery, South West Water has had another strong year, with sound financial performance being supplemented by improved customer service and delivery of further operational efficiencies.
Operating profit up by £4.9 million (2.6%) to £196.5 million (2009 £191.6 million). For the five-year period 2005/06 to 2009/10 operating profit is shown in the graph to the right. |
The company's revenue increased by £12.5 million to £444.2 million:
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68% of our domestic customers now receive a metered supply. |
Operating costs, excluding depreciation, increased by £3.8 million to £154.1 million:
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Restructuring costs were £5.0 million in 2009/10 and a further £4.0 million is expected to be provided in 2010/11. |
Despite the downturn in the property market, property disposals in the year contributed £1.0 million to profit (2009 £1.7 million). |
The bad debt charge increased by £0.9 million from £6.4 million to £7.3 million. Collections performance on older debt marginally improved over the year. |
Capital expenditure was £143.3 million, including £9.7 million on advanced spend for K5. £37.6 million was spent on quality schemes, principally on concluding the water mains rehabilitation programme and making progress on waste water programmes, including the new sewage treatment works for Bossiney, Boscastle and Tintagel. |
Further contributions totalling £9.9 million were made to the defined benefit pension schemes. |